“For essential oil production, the billets of wood are chipped and ground to a powder. Most sandalwood oil is now produced by steam distillation of the powder. The oil content increases and is of a better quality in older trees. The oil is then sold to the end user for fragrances and perfumes. Exhausted sandalwood powder left over after distillation is used in the incense industry.
India accounts for some 90% of sandal oil production in the world. Sandalwood has a fairly wide distribution, but Mysore in India is the centre of supply. Here 75% of the best quality, most aromatic timber is obtained.
Trees tend to grow very slowly, gradually developing a core of heartwood. The environment has an effect on the quality of the wood and oil. Trees on mountainous, rocky and dry soils develop the hardest wood with the greatest oil content. The darker the wood, the higher the oil content. The highly prized marks, called birds’ eyes, have a very high oil content are the result of damage to the wood.”
http://www.plantcultures.org/plants/sandalwood_production__trade.html